03 Jan

Executive Summary of the Expropriation Bill, with AND without compensation. What you need to know.

Government has published a draft Expropriation Bill for public comment on Friday 21 December 2018. (Follow this link to add your comments – closing date for comments is midnight 19 February 2019) https://dearsouthafrica.co.za/expropriation-bill/

The Bill addresses expropriation with compensation, and without compensation (EWC)

The Bill does not limit the nature of land which may in principle be expropriated without compensation, and thus it may also include residential property. This, to date, was not anticipated. The good news however, is that Government seems to only be interested in certain categories, which are dealt with below. This is not to say they are limiting it to these types of properties, but it appears to be the case.

The Bill also brings much needed comfort, because it provides that no decision to expropriate (save for urgent and temporary expropriation due to extreme circumstances such as disaster management) may be enforced, unless it is by mutual consent, or with a court order. Furthermore, anyone who has an interest in an expropriation (for example a former spouse who stands to take transfer by virtue of a divorce settlement agreement; a tenant; a beneficiary in a deceased estate) may approach the court to challenge any decision to expropriate, and / or the amount offered for compensation, if any.

Herewith a summary of the Bill:

Purpose of the Act if this Bill becomes law:

To provide for the expropriation of property (which includes land) for a public purpose or in the public interest, in accordance with the Constitution.

One must bear in mind that although section 25 of the Constitution Act says that no one may be expropriated save with compensation, section 36 of the Constitution Act also states that any right in the Bill of Rights (such as the right not to be expropriated without compensation) may be limited (i.e. infringed upon), if it is deemed to be fair; justifiable and reasonable, and taking into account all relevant circumstances. It is therefore already actually (at least theoretically) possible, for Government to expropriate without compensation, if it can prove to the Constitutional Court, that it is justifiable under the circumstances, whatever they may be in any given instance. However, the current (and very outdated Expropriation Act) obviously needs to be changed to now make provision for EWC, which is why we now see this Bill for comment. It is against this backdrop that this proposed legislation is to be applied and interpreted.

How are “public purpose” and “public interest”, defined?

These terms are defined to mean that they include “any purposes connected with the administration of the provisions of any law by an organ of state” and to “include the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources in order to redress the results of past racial discriminatory laws or practices”, respectively. So then to build schools; roads; hospitals and to address racial discrimination from the past (think about the land redistribution programme we have seen take shape over the past few years) etc. Land may not be expropriated for any other reason.

Who pays all the legal costs of giving effect to a decision to expropriate (i.e to transfer the property and maybe cancel existing bonds)?

The relevant organ of state which expropriates.

How does government intend to go about expropriating land?

  • Once property is earmarked for expropriation, the expropriating authority must ascertain the existence of registered and unregistered rights in such property and the impact of such rights on the intended use of the property, and may, only with either the consent of the owner (which includes a lawful occupier), or a court order, enter the property to conduct a full investigation, to determine the suitability of the intended expropriation, and value of the property. The local municipality must also be advised and consulted. The owner is required to then cooperate. Any organ of state which has a material interest in the intention to expropriate that piece of land, must then also be notified to allow for input.
  • If an expropriating authority intends to expropriate property, it must amongst other things, publish a notice in the Government Gazette, two local newspapers circulating in the area where the property is situated, and serve a notice of intention to expropriate, on the owner (which includes anyone with a registered real right over the property) and any known holder of an unregistered right in the property. Notices must be hand delivered or sent by registered mail or in such manner as a Court deems appropriate. This notice and publication, must, amongst other things, include a description of the purpose for which the property is required and the intended date of expropriation, and extend an invitation to any person who may be affected by the intended expropriation to lodge objections and submissions within 30 days (not specifically defined, thus calendar days), and it must include a directive, amongst other things, to provide the details, names and addresses of any holders of unregistered rights (i.e. of which no official, public record exists – such as a lease agreement, and details of the right and the holder thereof) together with input on the amount claimed by the owner or holder of unregistered rights, as reasonable compensation; details of any improvements made to land which should affect the proposed compensation sought; details of any sale agreement, if the property has been sold but ownership not yet transferred, with details of the purchaser, and finally, if a builder’s lien exists over the property, details of the builder and the lien.
  • Within 20 days of receiving a response from an owner or rights holder, the expropriating authority must then inform the relevant owner or rights holder of whether the amount of compensation claimed, is accepted, and if the amount of compensation claimed is not accepted, indicate the amount of compensation offered, if anything, by, furnishing full details and supporting documents in respect thereof.
  • If no agreement on the amount of compensation payable has been reached between the expropriating authority and the owner or the rights holder within a further 40 days of the expropriating authority receiving a response from an owner or rights holder, the expropriating authority must decide whether, or not, to proceed with the expropriation. If the expropriating authority decides to proceed to expropriate; or to continue with negotiations on compensation; or not to proceed with the expropriation of the property, it must then inform the owner or rights holder of its decision, “within a reasonable time“. Sadly, this is not defined. It is therefore not at all clear how long this process can take which may present a Constitutional challenge.
  • All organs of state that have a material interest in any intended expropriation must also be notified of the expropriating authority’s intention and this in the writer’s view means that the deeds office will also have to be notified. This may very well result in an interdict being registered against the property called a “caveat”, which could hold up any potential transfer of such land for “a reasonable time”. It also means that one cannot do anything with that land – transfer; bond; subdivide etc. This could also present a Constitutional challenge if I interpret this part correctly.

How is compensation determined?

The amount of compensation to be paid to an expropriated owner or expropriated rights holder must be just and equitable reflecting an equitable balance between the public interest and the interests of the expropriated owner or expropriated holder, having regard to all relevant circumstances. This may include the current use of the property; the history of the acquisition and use of the property; the market value of the property; and the purpose of the expropriation.

When may land be expropriated WITHOUT compensation?

All the Bill states in this regard (literally only 12 lines are dedicated to this out of the entire Bill) is that it may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances, including but not limited to:

  • Where the land is occupied or used by a labour tenant, as defined in the Land Reform (Labour Tenants) Act, 1996 (Act No. 3 of 1996) (i.e. farm labourers occupying cottages – here, a portion of the farm might be subdivided; title deeds issued and each labourer becomes the owner of a cottage. The Bill allows only a portion of land to also be expropriated and does not require the entire land to be expropriated);
  • Where the land is held for purely speculative purposes; (i.e. I imagine this to mean where one has bought with the intention of selling quickly at a profit – How exactly Government intends to determine one’s intention in this regard remains unknown as this is not defined);
  • Where the land is owned by a state-owned corporation or other state-owned entity;
  • Where the owner of the land has abandoned the land; (this word has also not been identified so one must wonder how Government intends to prove this)
  • where the market value of the land is equivalent to, or less than, the value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land. (This seems to refer for example, to farms which were expropriated with compensation; redistributed; the state subsidised the new farming operation but where farming operations have failed. Here Government may want to take it back and redistribute a second time with the hope that it will become operational and profitable.)

It is important to note that the above is not a closed category of land that may be earmarked for EWC, however, it does not appear that they are interested in any other land, else why make special mention of these categories?

Disputing compensation or ignoring expropriation notices

The Bill proceeds to say that the owner or a holder of an unregistered right who receives a notice of expropriation must accept or contest any such notice, whether subject to or without compensation, and if contested, what information to provide and how to go about trying to reach a settlement.

Ultimately it also states that even if the owner or holder fails to respond to an expropriation notice, no decision to expropriate can be made final until either the owner or holder agrees to this, and also, to the amount of compensation to be paid, or until a Court makes an order enforcing it, where no agreement can otherwise be reached.

However, if the only dispute centres around the amount to be paid, an owner or holder can still be expropriated, and ownership can be transferred. The issue of compensation can then be determined separately.

Payment where property is bonded, or has been sold, or is subject to another’s rights

If property that is expropriated is encumbered by a registered mortgage or subject to a deed of sale, or builder’s lien for example, the expropriating authority may not pay out any portion of the compensation money except on such terms as may have been agreed upon between the expropriated owner or expropriated holder and the bond holder, or buyer or builder concerned, as the case may be.

Failing such agreement reaching the authority within certain time frames, it may deposit the compensation money with the Master of the High Court, and any of the disputing parties may apply to court for an order directing the Master to pay out the compensation money in such manner and on such terms as the court may determine.

What about rates clearance to enable transfer?

Once expropriation is a certainty the municipal manager must, within 30 days of receipt of a copy of the notice of expropriation, inform the expropriating authority in writing of any municipal charges owing. The expropriating authority must inform the expropriated owner or expropriated holder of any outstanding charges and if the said amount is not disputed within 20 days of the notification, the expropriating authority may utilise as much of the compensation money in question as is necessary for the payment, on behalf of the expropriated owner or expropriated holder, of any outstanding charges. The Bill does not tell us what is to happen where no compensation is payable. One must assume that the land owner will remain liable given that liability arose during the time of ownership, or that the government will not expropriate land where there are debts like this without paying at least the amount needed to settle these debts.

If the municipal manager fails to inform the expropriating authority of the outstanding charges within the time it has, the expropriating authority may pay the compensation to the expropriated owner or expropriated holder without regard to the outstanding municipal property rates or other charges, and in such an event the Registrar of Deeds must register transfer of the expropriated property and the expropriated owner or expropriated holder, as the case may be, continues to be liable to the municipality for the outstanding rates and charges calculated up to the date of registration of the expropriated property in the name of the expropriating authority.

Urgent temporary expropriations

In the event of for example a natural disaster, property may also be temporarily expropriated for up to 12 months – (such as hotels, to accommodate people who lose their properties in a flood) subject to compensation and payment of any repairs or maintenance required, which arises as a result of the expropriation. But only if suitable property held by the national, provincial or local government is not available. A court may extend the 12 months if necessary or allow for urgent temporary expropriation under other circumstances, if circumstances justify it.

In closing then:

What we read into this Bill, and despite a few possible constitutional challenges, is a bona fide attempt by Government to regulate a highly sensitive issue. There is no proof at all of any attempt to just take land away left, right and centre. Instead, we see a concerted effort to regulate the matter in an orderly fashion. It is a pity that they have included land held for speculative purposes as a category of land that might be earmarked for expropriation without compensation because that may tend to put some investors off, but the reality is that even if this remains in the final Act, speculative buyers make up a tiny percentage of buyers of land in this country so the effect will be minimal. Secondly, according to the Davis Commission on Tax Reform, in the 2017 tax year SARS collected R8.7 billion just from transfer duty alone. Government cannot dare to bring about legislation which will cause the property market to crash, and in the process, lose billions in revenue! They could rather use the money collected to pay proper compensation to expropriated landowners.

So, in conclusion, we do not see any reason for panic or concern at all, and in fact, welcome this Bill as one that seems to deal with this matter as well as anyone could possibly have hoped for.

We will keep you posted on any further developments once the Government has finished with the public participation process.

Kindest regards

Robert Krautkramer
Miltons Matsemela Inc